A.M. Best Europe – Rating Services Ltd. has affirmed the financial strength rating of B- (Fair) and issuer credit rating of “bb-” of Leadway Assurance Company Limited(Leadway) (Nigeria). The outlook for both ratings remains negative. Concurrently, by mutual consent of both A.M. Best and Leadway, the company’s ratings have been withdrawn.
The rating affirmations reflect Leadway’s strong business profile as a composite insurer within its local market and its positive operating performance. The ratings also consider the company’s exposure to the high country risk associated with its operations in Nigeria. While operating performance has been supported by solid technical results, overall earnings have been consistently dampened by sizeable amounts of impairments and provisions for bad and doubtful debts in relation to the collection of outstanding premium debtors. A.M. Best does not expect the negative impact of these provisions on Leadway’s financial results to change in the medium term.
Leadway’s consolidated risk-adjusted capitalisation remains at a marginal level. This follows the deterioration in consolidated capital and surplus position at year-end 2011, due to the erosion in its equity revaluation reserves as a result of volatility in the capital markets. Although the level of equity investments has been reducing in the last few years, quoted and unquoted shares still account for a material portion of Leadway’s portfolio, representing approximately 35% of total investments at year-end 2012 (2011: 41%, 2010: 46%).Despite a moderate improvement in risk-adjusted capitalisation (on a standalone basis) at year-end 2012, following a recovery in equity market conditions, A.M. Best considers the margins incorporated within Leadway’s risk-adjusted capitalisation to be at a low level.
The negative outlook on the ratings continues to reflect the on-going uncertainty associated with Leadway’s investment risk appetite and growth plans, and the subsequent impact on risk-adjusted capitalisation. A.M. Best anticipates significant growth in premium volumes in the near term, following increases of approximately 45% and 55% in 2011 and 2012 respectively, as the company seeks to capitalise on the expanding life market and to grow within the oil and gas sector. Leadway’s risk-adjusted capitalisation is likely to remain under pressure due to the volatile domestic capital markets and its aggressive growth plans.